Meaning of equity shares and preference shares. Equity Shares: Meaning, Features, Advantages and Disadvantages 2019-02-23

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Equity Share and its Types

meaning of equity shares and preference shares

This is an important value in the case of and. Market Value In the case of companies listed on stock exchanges, the market value of the share is the price at which they are currently sold in the market. That means, it is out of the reach of the retail investor. Par value of preference shares Usually, preference shares have a par value. In case of non-cumulative preference shares dividend does not accumulate and therefore, no arrears of dividend will be paid in the year of profits. Features of Equity Shares The main features of equity shares are: 1.

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Meaning And Types Of Preference Shares / Accounting

meaning of equity shares and preference shares

The rate of dividend is determined by the Directors of the company. Their classification into various categories is as follows: Authorized Share Capital It is the maximum amount of capital which a company can issue. Cumulative Preference Share With regard to cumulative preference shares, any dividend not paid by the company in those years in which it made no profit accumulates. So they will issue preference shares. Voting Rights Equity shares carry voting rights. The company issues such kind of shares in order to protect the ownership rights of the existing investors. Appeal to Cautious Investors: Preference shares can be easily sold to investors who prefer reasonable safety of their capital and want a regular and fixed return on it.

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What is the difference between Cumulative and Non

meaning of equity shares and preference shares

Normally, all companies accept complete money in one shot and therefore issued, subscribed and paid capital becomes one and the same. Brought to you by Types of Equity Shares In the world of investing, nothing is ever simple. The preference shares are safer investments than the equity shares. Financial Burden: Most of the preference shares are issued cumulative which means that all the arrears of preference dividend must be paid before anything can be paid to equity shareholders. Fixed Maturity Just like debt, preference shares also have fixed maturity date. Three types are authorized share capital, subscribed share capital and issued share capital. These shares do not have the authority of voting in company matters, however, receives dividends at a guaranteed rate.

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Shares and Type of Shares

meaning of equity shares and preference shares

This needs to be done at least seven days prior to the meeting. The key differences between preference shares and equity shares are listed in the following table: Difference between Preference Shares and Equity shares Basis of Distinction Preference Shares Equity Shares Rate of Dividend Paid at fixed rate May vary , depending upon the profits Arrears of Dividend Get accumulated for cumulative preference shares No accumulation Preferential Rights Before Equity shares After Winding up Have a right to return of capital before equity shares. No claim over surplus: The preferential shareholders have no claim over the surplus. No Burden on Finance: Issue of preference shares does not prove a burden on the finance of the company because dividends are paid only if profits are available otherwise no dividend. This type of shareholders have a right to claim a fixed percentage as dividend every year.


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Shares and Type of Shares

meaning of equity shares and preference shares

Meaning: Equity shares are those shares which are ordinary in the course of company's business. B Advantages from Investors point of view: Investors in preference shares have the following advantages: I. Types of Preference Shares Cumulative preference shares Preference shareholders often receive cash dividends. The Preference Shares are of the following types: a Cumulative Preference Shares : The dividend payable on these shares goes on accumulating till it is fully paid off. Rights shares are generally offered to the existing shareholders at a price below the current market price, i. And the liability of the Equity holders is limited to the extent of their holding only in case of winding up of the Company.

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Meaning, Definition and Classification of Preference Shares

meaning of equity shares and preference shares

Variety: Different types of preference shares can be issued depending on the needs of investors. Widens Capital Market: The issue of preference shares widens the scope of capital market as they provide the safety to the investors as well as a fixed rate of return. Non-Cumulative Preference Share Non-cumulative dividends are in contrast to cumulative dividends. Apart from the above, there are other types of shares equity also. Thus it goes on changing. They can only ask for the return of their capital investment in the company.

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Preference Shares: Definition, Advantage and Disadvantage

meaning of equity shares and preference shares

When can preference shares be redeemed? Debt is the amount of capital that has to be repaid, such as a bank loan. This preemptive right is advantageous to the preference shareholders. On the other hand, ordinary or equity shares are traded in the markets and their prices go up and down depending on supply and demand for the stock. It can take part in the making of certain important company decisions. Shareholders get some monetary benefits as shares are issued to them at concessional rates.

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Shares and Type of Shares

meaning of equity shares and preference shares

Flexibility in Capital Structure: The company can maintain flexibility in its capital structure by issuing redeemable preference shares as they can be redeemed under terms of issue. When a decision has to be taken on the capital structure, one must go for a mix of the two types of shares, in the share capital of the company. It makes sense to discuss the features similar to debt and equity separately. It has no cumulative rights to dividends. Paid Up Capital It is the part of the subscribed capital, which the investors pay. Preference shares can be made more popular by giving special rights and privileges such as voting rights, right of conversion into equity shares, right of shares in profits and redemption at a premium.

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